Question

Exercise 10-02

Pina Co. purchased land as a factory site for $552,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months.

The company paid $57,960 to raze the old buildings and sold salvaged lumber and brick for $8,694. Legal fees of $2,553 were paid for title investigation and drawing the purchase contract. Pina paid $3,036 to an engineering firm for a land survey, and $93,840 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $2,070, and a liability insurance premium paid during construction was $1,242. The contractor’s charge for construction was $3,781,200. The company paid the contractor in two installments: $1,656,000 at the end of 3 months and $2,125,200 upon completion. Interest costs of $234,600 were incurred to finance the construction.

Determine the cost of the land and the cost of the building as they should be recorded on the books of Pina Co. Assume that the land survey was for the building.

Cost of the Land		$enter a dollar amount
Cost of the Building		$enter a dollar amount

Answer 1

Cost computation of Land and Building as follows:

	Land	Building
Purchase price	$552,000
Razing cost of old building	$57,960
Less: Salvaged lumber and bricks	($8,694)
Legal fees	$2,553
Survey		$3,036
Plans		$93,840
Title Insurance cost	$2,070
Liability Insurance		$1,242
Construction cost		$3,781,200
Interest		$234,600
Total	$605,889	$4,113,918